Robert Reich: America has forgotten its 3 biggest economic lessons

The former labor secretary reveals how our
country has abandoned the winning formula it developed post-World War II

Why has America forgotten the three most important economic lessons we learned in the 30 years following World War II?
Before I answer that question, let me remind you what those lessons were:First, America’s real job creators are consumers, whose rising wages generate jobs and growth. If average people don’t have decent wages there can be no real recovery and no sustained growth.
In
those years, business boomed because American workers were getting
raises, and had enough purchasing power to buy what expanding businesses
had to offer. Strong labor unions ensured American workers got a fair
share of the economy’s gains. It was a virtuous cycle.Second,
the rich do better with a smaller share of a rapidly growing economy
than they do with a large share of an economy that’s barely growing at
all.
Between 1946 and 1974, the economy grew faster than
it’s grown since, on average, because the nation was creating the
largest middle class in history. The overall size of the economy
doubled, as did the earnings of almost everyone. CEOs rarely took home
more than 40 times the average worker’s wage, yet were riding high.Third,
higher taxes on the wealthy to finance public investments — better
roads, bridges, public transportation, basic research, world-class K-12
education, and affordable higher education – improve the future
productivity of America. All of us gain from these investments,
including the wealthy.
In those years, the top marginal
tax rate on America’s highest earners never fell below 70 percent. Under
Republican President Dwight Eisenhower the tax rate was 91 percent.
Combined with tax revenues from a growing middle class, these were
enough to build the Interstate Highway system, dramatically expand
public higher education, and make American public education the envy of
the world.
We learned, in other words, that broadly shared
prosperity isn’t just compatible with a healthy economy that benefits
everyone — it’s essential to it.
But then we forgot these lessons.
For the last three decades the American economy has continued to grow
but most peoples’ earnings have gone nowhere. Since the start of the
recovery in 2009, 95 percent of the gains have gone to the top 1
percent.
What happened?
For starters, too many of us bought
the snake oil of “supply-side” economics, which said big corporations
and the wealthy are the job creators – and if we cut their taxes the
benefits will trickle down to everyone else. Of course, nothing trickled
down.